Might be wrong but feels like the worst in the oil price is behind us. Oil rigs from 1500 to 800 in a year, has to bring the volumes down. The Fed seems it's in the new normal and can't figure out what to make of it, inflation at target maybe in 18 or whatever it was. Lower rates for longer. The globe recovers slowly. Technology keeps inflation checked. Shale boom continues. Bought some more Williams.
Nat gas strip is $3.30 avg next year, $60 oil. That would get ARP $4.15/mcf, ignoring hedges. Costs are $1.90 operating plus $1.50 G and A plus interest, plus $.55 for maintenance capital, total $3.95. Add dist of $1.05/mcf, $5 needed to keep the distribution whole. Best this can do is keep the current distribution, doubtful. Nat gas doesn't get out of the $3s for a few years. Distribution doesn't survive the year.
I asked myself the same, went back to look at what might be an issue and it's not apparent to me. Somehow they are being lumped with the high debt cos, I guess.
Still seems an obvious move is to lessen dependence on the flow of oil out of the middle east. Why wouldn't we approve every measure to control as much oil supply in this country. Somehow we seem to survive our political leaders. Most are calling for the further appreciation of the dollar, can't be good for the oil price recovery. Lots of moving parts.
Omega gets subpoena, Cooperman and Cohen deserve each other. Dollar appreciation, 20% plus, that alone should have pushed oil down to $80 without the supply issues, dollar strength not going away. Couple that with oil's gradual recovery, $60 next year and gas that doesn't get out of the low $3s, ARP is headed lower.
Seems we could add a few dollars of risk premium to the oil price with Yemen, terrorist speculation. And those predicting $15 or $30 short term cover. Or is this another head fake. Doesn't feel like it. Saw a comment that demand is picking up in emerging markets, not just dependent on China super cycle. Still don't think this is a quick recovery. Although with the nature of the shales, we could have 6 month cycles. Would take some getting used to.
Struck me that the dollar effect on oil hasn't gotten much comment, dollar has appreciated 20%+, simplistically should reduce the oil price by $20kl, all else being equal. The dollar remaining strong could be a headwind for oil or could boost the oil price recovery. I'm not sure the dollar gives up much of its strength in the short term.
Not getting a lot of comment? Dollar has appreciated 23%. Assume that's around $20 per barrel. Wonder how that works with recovery, assuming the dollar doesn't depreciate, seems a head wind on oil price rise. All else being equal, oil should have fallen to $80.
Bakken rigs down to 98, Hamm called for low of 100. Seems this drop in activity should put a dent in production, probably what Boone focuses on. Have wondered about less efficient rigs, vertical rigs impact, not sure it's linear, but 98 no is a big drop.
Enlink, midstream c corp, controlled by Devon. The LP, ENLK, selling units today to purchase dropped down assets from Devon. ENLC down some, sales like this, the GP should go up. ENLC is the GP and should grow 20% plus for a few years as Devon drops assets to ENLK. Yield is 3%, guess it's $50 in two years, $31+ today. And probably most important, the revenues are almost all fixed, no commodity exposure. Devon is a great operator, lots of growth in Permian, Midcontinent, Rockies. No issues with K1s, a c corp.
Boone is not infallible but he knows energy dynamics, has seen enough cycles, I would trust him over anyone out there. My analysis is $50 is way too low and $100 in the next couple of years is probably too high. Used to think $90 was equilibrium and on some days, still seems a reasonable guess at longer term global price. Demand has not helped recently, developed countries not doing well and being more efficient and the developing world, China etal, needs to keep growing, may not by double digits but high single digits will keep oil prices healthy. It is interesting that a few years ago, we were talking about peak oil, who knows, in a decade that could be the topic again.
I don't think oil and gas will recover fast enough for ARP to avoid cutting, eliminating the distribution. The high teens yield looks good now but the 12% looked good when the units were selling for $20 or thereabouts. Problem with high yield bets, for most people, they are blinded by the yield. At $60s oil and $3s gas which I could see being a possibility for a couple of years, ARP equity value is much lower than the current unit price. Time will tell.
CS comments below, we have health care and energy helping keep prices down. Food? Housing, low rates help. The 10 yr has moved back to 1.8% from 2.2%. Should help oil, weaker dollar? Still can't see inflation, FOMC killing the market this year, even with a rate increase, probably better just to get it behind us.
Shrinking labor market slack, accommadative financial conditions, and stronger credit growth are a mix of fac
tors that should help cut spare capacity and boost inflation over a medium-run horizon.
However, various downside factors could make achieving the Fed's 2% "target" an uphill battle in the short term.
Low energy prices should keep annual rates of headline inflation suppressed for much of this year, all else equal.
We see three headwinds which may constrain core inflation for a period of time. One is statistical (challenging base effects).Two others are more fundamental (import prices and health care).
Encouragingly, recent below-target inflation does not look associated with a shortfall in domestic demand.
On that score, even if inflation remains low for a time, we think the FOMC can justify a forecast that says inflation "will moveback to its 2% objective over the medium term." Low short-run inflation is therefore unlikely to forestall policy lift
A comment from CS on Anadarko, the Wattenberg potential. I don't think the Wattenberg gets as much emphasis as it should because it is controlled by two big global players, APC and Noble. BCEI should do well over time it seems. WTI $48 today, interesting how it works, looks like a healthy price today. 10yr T yield down to 1.8%, weaker dollar, good for oil. Today, feels like bottom is in.
Given excess spare capacity in oil and gas markets, we believe companies such as APC that are lever
ed to the low end of the U.S. cost curve (Wattenberg) with strong balance sheets are best positioned to drive relative out performance.
WLL failure to get bids, probably not good for the sector today although oil price is maybe responding to dollar weakness. Still feels like for longer term, worst is behind, timing of recovery and equilibrium still murky.
Not that knowledgeable the Fed but this sounds irrational. You buy govt debt and refund the money to the govt. So could you buy all of the $20 trillion in debt or whatever the number is, get interest of $400 billion and return the interest to the govt. Wish I could do the same.
The Federal Reserve paid a record $96.9 billion to the U.S. Treasury in 2014 as interest income on its bond purchases increased solidly. The annual payment to U.S. taxpayers was up from $79.6 billion in 2013, according to the Fed's annual financial statement and audit by Deloitte & Touche released Friday. The Fed earned $115.9 billion in interest income on its securities, up $25.5 billion from the previous year. The Fed, by law, must hand over the bulk of its profits to the Treasury -- payments that have swelled as the central bank has
purchased large quantities of bonds since the recession to spur the economy.
With operating costs of $1.90/mcf, G and A and interest adding $1.50, doesn't take a spread sheet to see they can't even cover costs at $3 gas and $50 oil, much less keep production level and pay a distribution. They are spending almost $2 per unit on capex. A $2 value this year. No one would pay the $1.5 billion debt number to acquire their assets. Equity value of nothing. A rebound in gas, mainly and oil needs to happen fast, imo, doesn't happen fast enough.